BUSH AND SOCIAL SECURITY: THE BOTTOM LINE

President Bush tonight is expected to make a new proposal on Social Security. There are rumors that the president will propose new benefits for those with the lowest incomes, an old idea that enjoys broad support, but one that would leave most middle-class seniors vulnerable to the deep benefit cuts required by the president’s privatization plan.

Senate Democrats eagerly await the President’s statement and believe listeners need to focus on two overriding questions:

1) Does the president continue to support using Social Security dollars for private accounts, requiring deep benefit cuts for most beneficiaries and massive borrowing from China, Saudi Arabia and other foreign countries?

2) Did the president make specific new proposals to ensure that Social Security remains solvent beyond 2052, the insolvency date currently projected by the nonpartisan Congressional Budget Office?

KEY FACTS ON PROGRESSIVE PRICE INDEXING

The president is widely expected to fully endorse Robert Pozen’s plan for progressive price indexing. Though the word “progressive” may lead you to believe that this plan provides some progressive benefit for seniors, the truth is that this plan will provide deep benefit cuts for middle-class seniors. It is just another wrinkle in the bad privatization plan this president refuses to give up.

Deep Benefit Cuts for Lower Waged Earners. There would be a 28% benefit cut for a worker who is born five years from now, who retires at age 65, and who has average career earnings (under the definition of average earnings of the Social Security Administration Actuaries’ office). In 2005, such average earnings is $36,000. [Social Security Administration Memo, Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing, 2/10/05]

Deep Benefit Cuts for Average Earners in the Future. There would be a 42% benefit cut for a worker who is born five years from now, who retires at age 65, and who has career earnings that are “the equivalent” of $59,000 in 2005. [Social Security Administration Memo, Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing, 2/10/05]

Deep Benefit Cuts for Average Earners Today. There would be a 24% benefit cut for a worker who is 25 years old today, who retires at age 65, and who has career earnings that are “the equivalent” of $59,000 in 2005. [Social Security Administration Memo, Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing, 2/10/05]

Progressive Price Indexing Will Come On Top of the Privatization Tax in the Bush Plan. The progressive price indexing plan that the president has indicated he prefers and that Robert Pozen has proposed will include two benefit cuts for workers. “Under private accounts like those the President has proposed, the cost of the private accounts is offset by reducing substantially the Social Security benefits of those who elect the accounts. If progressive price indexing is combined with private accounts of this nature, Social Security benefits will be lowered twice — once due to the indexing changes and a second time to pay for the private accounts. As this analysis explains, the result would be that millions of middle-income workers would receive little or no Social Security benefits in retirement. They would be left largely with only their private account.” [Center on Budget and Policy Priorities, 4/26/05]